Mr Bush suggests lenders are mistakenly conflating BNPL schemes, such as Klarna, as well as short-term payment options offered by PayPal and Amazon, with payday loans.
He added: “If they are short-term loan arrangements they’ll be mostly paid off for the completion date.”
Suzanne Homewood, managing director of data platform Moneyhub, said the growing use of options like Paypal and BNPL can be a benefit if used correctly.
She suggested that queries and delays could be avoided if lenders made more use of open banking technology to get an idea of a borrower’s finances in real time.
Ms Homewood said: “This way, PayPal and BNPL become less of an unknown risk, allowing lenders to understand the habits and the customer’s ability to afford monthly payments.”
How should mortgage borrowers prepare?
As with any mortgage application, it is important to have all your finances in order.
Lenders will assess your affordability based on your income, expenditure and level of debt so it is important to be transparent about your liabilities.
Since BNPL is not currently regulated, lenders aren’t required to share the account information with credit reference agencies, but PayPal shares repayment history data with the agency TransUnion.
John Webb, consumer affairs manager at Experian, said flexible payment schemes won’t impact your Experian credit score yet but may be factored into affordability checks by lenders.
Mr Webb said: “If you’re using BNPL then you need to ensure you’re making all your repayments on time, so you avoid missed payments, and that it’s affordable. If the lender thinks you’re taking on too much debt, that could affect the outcome of an application.
“If you are applying for new credit soon, then it’s a good idea to stop taking out new credit agreements. Each lender will view BNPL accounts differently, but having multiple new short-term loans may be seen as slightly risky. So, you’ll put yourself in a stronger position by avoiding new credit accounts for a few months before you apply.”
It can be hard to predict the level of detail a lender will require and what transactions will be queried, especially as each lender will have its own criteria, while needing to follow regulatory rules on assessing affordability.
Karina Hutchins, mortgage policy principal at UK Finance, said: “Lenders will be sensible when reviewing an applicant’s spending; someone taking out short-term loans for low amounts which they repay on time is unlikely to affect their application.
“Mortgage advisers are also expected to review customers’ bank statements as part of their due diligence and query anything that might represent committed spending, such as payments made using buy now pay later schemes. This will happen before they calculate how much a customer can afford to borrow and apply to the chosen lender.
“I would encourage anyone who is worried about qualifying for a mortgage to speak to an independent mortgage adviser, who will be able to provide them with tailored advice specific to their circumstances.”
